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STRATEGIC ANALYSIS: INTERNAL ENVIRONMENTLecturer: Dr David
Cunneen
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Strategic Analysis: Internal Environment
Copyright 2011 Cengage Learning Pty LimitedLearning
ObjectivesExplain why strategic analysis of a firms internal
environment is importantOutline what internal environment
information is neededDescribe the differences between tangible and
intangible resourcesDefine capabilities and discuss how they are
developedDiscuss the characteristics of core competencies and their
combination into a firms strategic competitive advantage Outline
and discuss the four criteria that identify a firms core
competencies and hence strat4gic competitive advantage.
Copyright 2011 Cengage Learning Pty Limited
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OutlineIntroduction:Why is strategic analysis of a firms
internal environment important?What strategic information is
needed?
Analysing the internal environment:Components of internal
analysisWhat are resources?What are strategic capabilities?What are
core competencies?Concept of strategic competitive advantageLinking
resources, strategic capabilities, core competencies and SCA to the
marketStraying from the SCA?Analysing competitive strengths and
weaknesses
Conclusion: completing a SWOT analysisStrategic analysis:
summary
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ReferencesHanson et al., (2014) Chapter 3 (especially pp.
72-94)
Article 1(d): Viljoen and Dann (2003) Chapter 7 (especially
pp.197-198)
Readings in bold black are important
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Analyse the environmentIdentify opportunities and
threatsIdentify the organisations current vision, mission and
strategic objectivesReassess the organisations vision, mission and
strategic objectivesFormulate business strategies
Implement strategies
Evaluate resultsAnalyse the organisations resourcesIdentify
strengths and weaknesses A Strategic Management Process: Rational
or Formal Model Strategic direction-setting Strategic choice
Strategic analysisStrategic implementationStrategic evaluation
2.
9.8.7.6.3.1.4.5.(Source: Robbins, S. P., Bergman, R., Stagg, I.
and Coulter, M. 2009. Management, 5th edition, Pearson Education,
Australia: 276; and Robbins, S. P., Bergman, R., and Stagg, I.
1997. Prentice Hall, Australia: 248 ).
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Introduction: Why is strategic analysis of a firms internal
environment important?A firm operating in an attractive industry
(see Topic 3) does not automatically enjoy above average
returns!
An ability to secure above average returns also requires a firm
to utilise its resources in a superior way to its competitors:
Superior use of resources creates greater value for customers
than competitors can achieve
Greater value for customers is the source of above average
returns!
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Copyright 2014 Cengage Learning Pty Limited. Hanson et al.,
2014: 17 Strategic analysis of a firms internal environment focuses
on the first three stages of the resource-based model of
above-average returns
Copyright 2014 Cengage Learning Pty Limited. Hanson et al.,
2014: 17
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Strategic analysis of a firms internal environments therefore
focuses upon examining the way a firm utilises its resources.
Superior combinations and uses of resources = competitive
strengths Poor combinations and uses of resources = competitive
weaknesses.
Strategic internal analysis aims to determine a firms
competitive strengths and weaknesses relative to its rivals in its
industry = competitive position.
The stronger a firms competitive position, the more likely it
will earn above average returns!Introduction: Why is strategic
analysis of a firms internal environment important?
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Constructing a SWOT for strategic analysis of an
organisation
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Analysing the internal environmentWhat strategic information is
needed?
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Analysing the internal environmentComponents of internal
analysis
Copyright 2011 Cengage Learning Pty LimitedHanson et al., 2011:
73(Hanson et al., 2014: 76)
Copyright 2011 Cengage Learning Pty LimitedHanson et al., 2011:
73
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Analysing the internal environmentWhat are resources? Copyright
2014 Cengage Learning Pty LimitedAre inputs into a firms production
processesMay be classified in many ways eg:
Physical, human, financial, intellectual, organisational
Tangible and intangible
Copyright 2014 Cengage Learning Pty Limited
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TANGIBLE RESOURCES
Copyright 2014 Cengage Learning Pty Limited Hanson et al., 2014:
81
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INTANGIBLE RESOURCES
Copyright 2014 Cengage Learning Pty Limited Hanson et al., 2014:
81
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Analysing the internal environmentWhat are resources? Copyright
2014 Cengage Learning Pty Limited
Typically, resources alone do not give a firm a competitive
advantage. Most firms in an industry will have the needed resources
to operate or they would soon fail.
Copyright 2014 Cengage Learning Pty Limited
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Analysing the internal environmentWhat are strategic
capabilities?
Copyright 2014 Cengage Learning Pty Limited. Hanson et al.,
2014: 76
Copyright 2014 Cengage Learning Pty Limited. Hanson et al.,
2014: 76
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Analysing the internal environmentWhat are strategic
capabilities?
Copyright 2014 Cengage Learning Pty LimitedStrategic
Capabilities
Strategic capabilities are bundles of resources that give a firm
the ability to compete in its marketAre often based on developing,
carrying and exchanging information and knowledge through the firms
human capitalAre often developed in specific functional areas, such
as R&D and marketing.
Copyright 2014 Cengage Learning Pty Limited
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Hanson et al., 2014: 83
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Analysing the internal environment What are strategic
capabilities?HOWEVER
The presence of strategic capabilities alone usually does not
produce sustained superior performance against competitors in a
market.
Why?
Because most (if not all) competitors are likely to have similar
strategic capabilities to enable them to operate and compete in the
market.
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Analysing the internal environment What are core
competencies?Sustained superior performance requires combining
strategic capabilities in ways unique to each firm:
that is combining strategic capabilities into:
core competencies
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Analysing the internal environment Combining strategic
capabilities into core competencies
Copyright 2011 Cengage Learning Pty Limited. Hanson et al.,
20114 76
Copyright 2011 Cengage Learning Pty Limited. Hanson et al.,
20114 76
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Analysing the internal environment What are core competencies?A
core competence
(an activity) a company does especially well in comparison to
its competitors (Hamel and Pralahad,1990 cited in Viljoen and Dann,
2003:197, bracket added).
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Analysing the internal environment What are core
competencies?
Copyright 2014 Cengage Learning Pty LimitedCore CompetenciesAre
combinations of strategic capabilities that serve as a source of
competitive advantage for a firm over its rivals
Distinguish a firm competitively and give it a unique identity
against its competitors
Emerge over time through an organisational process of
accumulating and learning how to deploy different resources and
capabilities
Copyright 2014 Cengage Learning Pty Limited
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Analysing the internal environment What are core
competencies?Characteristics of Core Competencies:
Systems of integrated strategic capabilitiesBased on strategic
capabilities (skills and knowledge) rather than products or
servicesBuilt up through organisational experience, commitment and
investment over timeAre in a constant state of adaptation and
evolutionLimited in number (maximum 5?)Difficult to replicate; they
are areas where a firm dominates its competitorsAreas of activity
that provide major value to customersUnique to each organisation
cant be acquired in the marketAre deeply embedded in the firms
organisation and systemsDifficult to readily observe(Hanson et al.,
2014: 80-92; Viljoen and Dann, 2003:197-198; Hubbard et al, 1996:
127-129)
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Analysing the internal environment What are core
competencies?
Copyright 2014 Cengage Learning Pty LimitedThe four criteria to
test for a core competence: Valuable; rare; costly to imitate;
non-substitutable
Copyright 2014 Cengage Learning Pty Limited
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Analysing the internal environment What are core
competencies?
Copyright 2014 Cengage Learning Pty Limited
Remember
Every core competence is made up of many strategic capabilities,
but not every strategic capability is a core competence!
Copyright 2014 Cengage Learning Pty Limited
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Analysing the internal environment Concept of strategic
competitive advantage
Copyright 2014 Cengage Learning Pty Limited. Hanson et al.,
2014: 76
Copyright 2014 Cengage Learning Pty Limited. Hanson et al.,
2014: 76
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Analysing the internal environment Concept of strategic
competitive advantage
The combination of a firms core competencies emerges
IN THE MARKETPLACE
in the form of the firms strategic competitive advantage (SCA)
or uniquely competitive position in its market
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Analysing the internal environment Concept of strategic
competitive advantageThe firms strategic competitive advantage
(SCA) and hence the core competencies that make up the SCA, must
satisfy the four core competencies criteria:
Valuable to the customers in the markets targeted by the
firmRare. That is, much better than competitors offerings in the
eyes of those customers; Costly or difficult for competitors to
imitate, exceed, or substitute with something else.The offering has
no competitive substitute (ie. few competitors, if any, can offer
anything like it).
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Analysing the internal environment Concept of strategic
competitive advantage
In sum, internal environment analysis is about identifying core
competencies and SCA:
Firms with a clear core competencies, which combine into an SCA
in the market, demonstrate a superior use of resources compared to
their competitors
The firms core competencies and hence SCA provides its customers
with superior value
Superior value for customers is the source of above average
returns!
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Analysing the internal environment
Linking resources, strategic capabilities, core competencies and
SCA to the market
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Analysing the internal environmentStraying from the SCA?
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Analysing the internal environment Analysing competitive
strengths and weaknesses
Competitive strengths = core competencies and SCA
Competitive weaknesses = lack of certain strategic capabilities;
lack of core competencies; lack of an SCA.
A reminder! Be sure to include the results of turbulence
analysis about the strategic focus of the firm: namely, if
strategic management is well-focused for the degree of turbulence
faced by the firm, that is a strength; if poorly focused, that
could be a potential weakness for a firm.
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The overall conclusion that should emerge from the strategic
SWOT analysis is the answer to the question:
How competitively well-positioned is the firm in its industry,
both now and in the future, to seize opportunities and mitigate
threats, thereby consistently earning above average returns?
Conclusion: Completing a SWOT analysis
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Constructing a SWOT for strategic analysis of an
organisation*
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Strategic Analysis: Summary
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Strategic Analysis: Summary
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